Summary

They key question is: would a competition inquiry into the electricity industry raise the risk of power blackouts?

In the absence (sadly) of a clear reply, here is a summary of what I think has emerged today:

Serious voices including the Royal Academy of Engineering believe that there is a shortfall in current plans for energy generation compared to future demand.

It is entirely plausible that energy companies will be more reluctant to invest in expensive new generation projects if there is a risk they will be restructured following the review. They are owned by shareholders whose purpose is to make money, not deliver public goods.

Even before this review there was not sufficient evidence of other investors filling this gap (viz the RAE report only a few months ago), and there is no evidence that during the review this would change.

However there are other options: some nuclear power stations have had their "life" extended already; this could be done with other power stations, while gas generators could be put back to work, and customers could be helped to save energy.

The main problem with the competition-inquiry-causes-blackouts argument, though, is timescales. The inquiry is expected to last two years: no investment shelved by power companies during that time would make any difference in that time, nor in the immediate years afterwards, certainly no more than could be handled by the alternative measures outlined above.

Even if there are further delays due to political wrangling over any recommended shake-up, it is still a short time scale, and if there were a more serious looming energy crisis both politicians and companies would have big incentives (popularity and profits) to act more quickly on any restructuring and investment.

So while an emergency blackout is never something that can be dismissed, indeed they occasionally happen already in exceptional circumstances such as the recent flooding in south west England, I haven't yet seen any good evidence that the proposed competition inquiry would cause a systemic problem.

Technically, given a hiatus in investment, Laidlaw could be correct to say that the probe creates an "increased risk" of blackouts. But given all the many long term problems and short term alternatives, and the very different time frames for the two events, it is hard to see that being proved in practice.

Thanks so much for such helpful input today, especially the pointers (okay, corrections!) on California. I really do appreciate people taking time to read, comment and best of all provide links.

Blackouts are still unlikely, and could only occur if there are sudden threats to the system, such as the unplanned shutdown of a power station, problems with the interconnectors that bring gas and electricity to the UK, and a prolonged cold snap. But the report, which was prepared for the prime minister's Council for Science and Technology, found that these events have all occurred in recent years – though not at the same time – and could easily happen again.

John Roberts, the former chairman of United Utilities who led the work, told the Guardian that electricity generators may need to be given fresh financial incentives paid via energy bills to encourage them to avoid power cuts... "Energy companies have no legal obligation to keep the lights on. There will need to be incentives."

A couple of contrary points stand out from this story, however.

Firstly, mothballed gas plants would take two to three months to come back on line. This would be a problem in an emergency such as a sudden unplanned shutdown of a power station, however most blackout threats would loom more gradually, presumably with plenty of time for prices to rise and generators to un-mothball (is this a word?) their gas plants.

Secondly, the "critical danger point" is reported to be "during the winter of 2014-15". This is far too soon to be affected by any generation building which might - or not - be affected by the decision to have a competition review of the electricity industry. Which makes me think the whole issue of timing of blackouts and new capacity investment are probably so badly aligned it will be hard to pinpoint this single decision by Ofgem as the cause of any outages in future.

Sam Laidlaw is not alone in worrying about blackouts, or at least thinking they are possible.

In January, Sir John Armitt, the man credited with delivering the successful London 2012 Olympic Games and now advising Labour about future infrastructure needs, said in an interview with Building magazine (reported in the Guardian) that blackouts could be a good way to jolt ministers into taking action:

In harsh political terms [blackouts] would be the best possible thing that could happen because this country is extremely good in a crisis.

We are very close to being in a crisis when it comes to energy … the Central Electricity Generating Board used to say that a resilient network operated on a 25% capacity surplus. We're down to 4% because we've gone slower than we should have done on nuclear.

The same story quoted Dieter Helm, professor of energy policy at Oxford University,who in turn cited calculations by the Aurora Energy Consultancy, which show surplus energy capacity in 2015-16 could be close to zero – leaving the nation on the cusp of blackouts:

We know what the calculations are on the supply side because no new kit [power plants] will be built before 2015-16, but on the supply side all official estimates have underestimated GDP [gross domestic product] growth and therefore energy demand.

Last autumn the Daily Telegraph quoted Steve Holliday, chief executive of National Grid, saying they were developing emergency plans to avoid blackouts. Among the ideas discussed, the Telegraph reported, were:

Users will be financially incentivised to turn their power off for short periods at peak times, easing the burden on the national system, while energy companies that had planned to decommission power plants will be paid to “bring them back up and running at times of stress.

Summary so far

There is a plausible argument that big energy companies which dominate UK supply and retail will be less willing to invest during a competition inquiry because of the uncertainty over their futures.

There is a need for investment as nuclear and coal power stations are expected to be taken off line.

But this presupposes that other changes would not close any gap between supply and demand, for example closures could be delayed, other investors could enter the market (as often happens with renewables), or customers - especially big energy using businesses - could find ways to use less energy.

Those final points - the alternatives to blackouts - will be my focus for the rest of this afternoon.

It has been pointed out below the line that the Congressional Budget Office report (see 11:51am) came out before the Enron scandal erupted, which revealed the company's role in the problems. I hold my hands up, I'd forgotten they were linked. Here is a taste:

Just a few thoughts triggered by the picture at the head of the article and the idea stated in a front page headline at 1244GMT that an investigation "could trigger blackouts".....Oh really ? If you are investigated, you'll pull the plug ?

Firstly, the Californian brownouts of 2001 were the result of deliberate manipulation of the energy market by among others Enron, who went as far as illegally shutting down pipelines and attempted to blackmail the state. The market manipulation pushed prices up 800% ........ If there is a repeat of such actions here, I would argue that this in itself is proof that that energy is too important to be left with the "free market", unless regulation grows epic fangs and actually uses them.

Secondly - If the response to an inquiry is blackouts - there needs to be arrests of corporate leadership and exemplary justice with the threat of re-nationalisation.

The California example was always a bit of a tangent: on reflection I will ignore it in my summing-up unless somebody finds any further evidence of links.

Elsewhere on the Guardian my colleague Damian Carrington has written a feisty blog arguing the very opposite of what Laidlaw has warned: that shaking up the Big 6 energy suppliers should improve generation and security of supply.

Here is just one of the points he makes:

Energy companies are always quick to raise the spectre of the lights going out and it's easy to understand why: it's scary way of reminding politicians to do what the big six tell them. But energy prices are highest when supply is most stretched. If the lights ever did get close to going out, the big six would rake it in. The reason why the margin between capacity and peak demand is getting so narrow is because the big six have mothballed or postponed power stations until the prospective profits get juicy enough.﻿

Worries about the gap between demand and supply - and the willingness of privatised utilities to fill it - are not new.

This paper from the House of Commons Library in 2010 is prescient. The Library is highly regarded by all parties for its a-political and rigorous work.

Here is their summary of how generation needs to change:

UK electricity generating capacity, 2008 & 2020.

And here is a timely warning about market uncertainty and investment:

The current liberalised market is unlikely to deliver the new electricity generating capacity and infrastructure that the UK urgently requires by the middle of the decade. Private companies are reluctant to make major investments in generation and transmission without greater certainty about the payback.

Centrica has sent me some analysts' reaction to today's Ofgem announcement.

Morgan Stanley:

This will likely stop almost all generation investments from the Big 6.

Liberum:

It is likely in our view that the hiatus in power generation investment we have seen in recent years will continue and probably deepen.

I have not verified them, but I would be surprised if they were not accurate. I'm not vouching for the analysis, before you ask. I would not presume. But these are the views of people not paid to say what the company wants, but to advise their colleagues and clients who have shares or might invest in the companies.

Following a little research I found this paper by the US Congressional Budget Office: 'Causes and lessons of the California electricity crisis', published in September 2001.

It is clear that California's problems arose from historic demand and supply issues, a restructuring plan in 2000 CHECK which imposed a price freeze, and the state government's response when problems began to emerge.

There seems little doubt though that the price freezes contributed significantly in two ways:

On the supply side, the plan's freeze on retail prices left the three big utilities in a financial shambles when wholesale prices in the spot market—where those utilities were acquiring nearly half of their power—rose above the freeze level. The plan made the utilities particularly dependent on that market in two ways: it encouraged them to sell their fossil-fuel generating capacity, and it discouraged them from signing new long-term supply contracts that could have protected them from adverse movements in prices.

Faced with a universal-service requirement (they could not unilaterally drop customers) and with a negative cash flow on nearly half of their sales, the utilities saw their losses mount. Lenders downgraded their creditworthiness, thus raising their costs for new borrowing. Moreover, independent power generators were able to push up wholesale prices further and even withdrew supplies when it looked as though the utilities might not be able to pay for their purchases...

And,

﻿On the demand side two problems coincided. Extreme weather and strong economic growth put stress on the market by increasing the use of power. At the same time, the freeze on retail prices magnified the impact of that stress on wholesale prices by eliminating incentives for consumers to conserve power. Even a small drop in electricity use—like the decline that occurred in San Diego when the price freeze there was temporarily lifted—would have been enough to let the state avoid some of the disruptions it has faced.﻿

Under the sub-heading Lessons for the future, the message is clear:

California responded to its immediate concerns about the availability of electricity and the volatility of prices by directly intervening in the market—a response that could prove costly to electricity consumers and taxpayers. Long-term solutions to California’ s electricity problems will most likely require three changes: removing barriers to the addition of generating capacity, eliminating bottlenecks in the elec- tricity transmission system, and removing regulatory restrictions on the sale of power throughout the broad western market. Those actions would help make the supply of electricity more responsive to changes in prices. On the demand side, the prospects for successful restructuring would also improve if consumers faced the full costs of electricity and were better able to adjust their use of power in response to changing prices.﻿

The above is more relevant to the growing pressure from Labour for a price freeze than the Ofgem recommendation to the Competition and Markets Authority for a wider investigation into prices and market structure. It is interesting though for two reasons: one of the richest and technologically advanced places in the world (California) was not protected from blackouts when outside interference affected the market, and because the CMA referral feels like an attempt to head off more direct intervention like that advocated by Labour.

A video interview with Sam Laidlaw on the Centrica website (here) gives some insight into the rationale behind his concern about an increasing risk of blackouts: his argument appears to be that during the competition probe energy companies will not want to invest in new power generation and with demand rising, gas supplies under threat in places like Ukraine, and old nuclear and coal power stations due to be retired, this could lead to a gap between demand and supply.

Such a gap could, in theory, be dealt with by reducing the intensity (for want of a better word) of electricity supplied, called brownouts, or cutting electricity to some customers - blackouts.

Here are some quotes from the video (with the time from the beginning that the quote begins in brackets):

At 00:31

The concern about this inquiry is it would last two years at a time when we have already had five years of investment hiatus because of electricity market reform. We'll then have a further two years of under-investment﻿.

This is coming at a time when actually Britain's energy security is being seriously challenged, not just in power generation but if you look and see what's happening in Ukraine for gas supplies as well.

At 05:41:

Clearly if we have this competition referral our ability to invest is going to be handicapped because we wouldn't invest in new power generation if there was a possibility that you might have to divest as a result of a competition referral. So that is the political risk during this period.

And at 07:30, in comments aimed at shareholders:

There will be a period of some regulatory uncertainty, which will make it very difficult for us to invest, particularly in power generation, and therefore I think shareholders may have to be a little patient during this process.﻿

I have asked Centrica if they want to elaborate. In the meantime I will dig out figures for any looming gap between supply and demand, and look at what plans are in place to fill that.

I'm still hoping the BBC will load up the Sam Laidlaw interview as an AudioBoo file. Until then, this is a fuller report of what he said, and the reply by the energy secretary Ed Davey, via the BBC News story:

Sam Laidlaw, Centrica chief executive, said he hoped "a lengthy review process will not damage confidence in the market, when over £100bn of investment in new infrastructure is needed".

When questioned on the BBC Radio 4's Today programme over whether it would mean power outages he said: "There is an increasing risk. A lot can be done in terms of demand management, but actually building a new gas power station does take four years.

"So that's the kind of time pressure we are up against, by adding another two years that makes it six years."

However, the Energy Secretary, Ed Davey said: "He is absolutely, totally wrong and I can prove it. We have 14 contracts for power generation [in the pipeline] over the next 15 years.

"What we are seeing in Britain is a big investment in energy.

"It is true that companies like Centrica are not investing as much as we might like them to but we are seeing independent energy generation firms like Siemens coming in in their place."

Ofgem, the energy industry regulator, today announced it would ask the Competition and Markets Authority (CMA) to investigate electricity and gas suppliers. It hoped to

Once and for all clear the air and allow the CMA to ensure that there are no further barriers to effective competition.

Ofgem said it acted after a dramatic drop in consumer confidence and growing pressure from rising consumer prices and profits taken by the Big Six retailers who dominate the market, specifically:

Retail profits increasing from £233 million in 2009 to £1.1 billion in 2012, with no clear evidence of suppliers becoming more efficient in reducing their own costs, although further evidence would be required to determine whether firms have had the opportunity to earn excess profits﻿.

Any findings will also play a key part in the political debate over how to respond to one of the key elements of what Labour have successfully dubbed the "cost of living crisis" in the UK. Labour wants to freeze energy bills pending such a review.

Among the fundamental changes which will be considered is whether major energy companies should be split up and how to make it easier for more companies to enter the market, so increasing pressure on the Big Six to cut prices to keep customers.

Responding the the expected announcement, Sam Laidlaw, chief executive of Centrica, once part of British Gas, told the BBC Radio 4 Today programme such a probe raised an "increasing risk" of blackouts.

Blackouts are regularly used to frighten politicians into making or not making decisions about costs and investment, though they seldom if ever materialise. What is the argument for Laidlaw's latest claim, and is there evidence to justify the fear?

Please help to Reality Check this claim by posting ideas, links and comments below the line, send them by email to juliette.jowit@theguardian.com or tweet to @JulietteJowit.